In modern Britain, marriage is still widely held as a good thing for people to aspire to. On the other hand, many people question the point of tying the knot. After all, what concrete advantages does a marriage certificate actually give you?
Answering this question is difficult, since discussions about marriage often bring up emotive topics around religion, tradition and culture. Here, we’re just going to focus on the purely financial aspects of marriage.
Broadly speaking, marriage does still offer you certain rights and financial advantages over simply cohabiting. We’re not saying that’s a good thing – we’re just describing how things are!
Here are some of the main financial benefits of being married:
#1 Inheritance tax
When a single person dies, the value of their estate needs to be valued for inheritance tax purposes. Generally speaking, any assets valued at over £325,000 will be subject to a 40% tax.
For instance, imagine you are single (in the eyes of the law) when you die, and your estate is worth £400,000. The first £325,000 will not be taxed, but the remaining £75,000 generally will be (assuming certain conditions are met; e.g. none of it is left to charity). So, any beneficiaries you have named will not receive the full £400,000. That includes your partner if you are unmarried.
If the above occurred when you were married, however, then your spouse could receive the full value of the estate without incurring any inheritance tax.
Another important aspect of inheritance tax is that, when you are married, one spouse can transfer their inheritance tax allowance to the other spouse if they die first.
For example, if the husband dies and leaves everything to his wife, his £325,000 tax-free allowance moves to her as well. This combines with her allowance to make a total allowance of £650,000. Unfortunately, this transfer of allowance cannot occur for unmarried couples.
It’s important to remember that when it comes to inheritance tax, in the eyes of the law an unmarried person is generally treated the same as a single person. Even if you have cohabited with a partner for decades.
On the flipside, another important point to mention is that civil partners and married couples are generally treated as the same in the eyes of the law.
#2 The State Pension
Yes, this is another point involving death (you’ll notice that a lot of them do as we go along!). If your spouse or civil partner dies, then you might be entitled to extra state pension payments.
Certain conditions must be met for this to occur. For instance, the date of retirement is an important factor and you must not have already built up the full state pension yourself.
With regards to your spouse’s other types of pension (e.g. workplace pensions, personal pensions etc.), you will likely be entitled to receive the benefits from these. However, if you and your partner are unmarried and the latter dies, you will not be entitled to them.
#3 Tax breaks
If you are married and one of you in the couple is not a taxpayer, then some of your Personal Allowance can be transferred to the person in the couple who does pay tax.
For instance, suppose you are a stay-at-home dad and you do not do any paid work. Your wife is the breadwinner and pays tax at the Basic Rate. Both of you each have a Personal Allowance of £11,850 in 2018-19.
However, since you do not work or pay tax, you can transfer 10% of your Personal Allowance to your wife. This means your wife will pay less in tax.
If you are unmarried, however, then this option is not open to you.
#4 Savings & Capital Gains
When you are married, the two of you can move your investments and savings between the two of you. You can do so without risk of incurring capital gains tax in the short term, or inheritance tax later.
Of course, you need to have fairly sizeable assets before you start paying interest on savings these days. The personal savings allowance means that you do not pay tax on any interest you earn up to £1000 per year.
However, if you do break this threshold then you can move some of your savings to your spouse’s personal savings allowance, to save on some tax.
When you sell an investment (e.g. shares), moreover, you can currently earn up to £11,700 per year from the profits without attracting tax. If you are set to break this threshold, then you could first transfer some of the assets you are looking to sell to your spouse, in order to use some of their allowances.
These options are not available to unmarried couples.
A will is a vitally important document for both married and unmarried couples.
However, due to the rules of intestacy (which give married couples some protection over how assets are distributed when you die), a will is even more important for unmarried couples.
It really doesn’t matter how long you have been with your unmarried partner, how many children you have or whether you have lived in the same property for decades. Without a will, the surviving partner stands a high chance of losing everything if the other partner dies.
Get a will so you can clearly express how you want your assets to be divided upon your death – including your home. It would be a great shame, for instance, if you built your life with someone and expected to inherit the home, only to see it pass into the hands of a distant relative!